Unassociated Document


    EXHIBIT
      10.2

     

    FORMAL
      AGREEMENT

    


    This
      formal farm-out agreement (hereinafter referred to as the “Agreement”) is
      between Coastal Petroleum Company (hereinafter referred to as “Coastal”) and
      Cobra Oil & Gas Company (hereinafter referred to as “Cobra”). Coastal and
      Cobra are sometimes collectively referred to as the “Parties”.

    


    This
      Agreement is referred to in a Memorandum of Intent signed by the Parties on
      May
      22, 2008, and when executed will replace that Memorandum of Intent and govern
      the rights of the Parties.

    


    In
      consideration of the premises, mutual covenants and obligations herein
      contained, the Parties agree as follows:

    


    
      	 	
              A.

            	
              LEASES

            


    

    


    Coastal
      has identified an area containing a series of shallow and deep prospects, the
      Starbuck Prospects. Coastal owns leases on 82,801.38 gross mineral acres
      (82,801.38 net acres) in Valley County, Montana (the “Leases”) that include the
      Starbucks Prospects. The Leases are 100% working and at least between 75.5
      and
      80.5% net revenue leases. A copy of the Schedule of Leases is enclosed herewith
      as Attachment A.

    


    
      	 	
              B.

            	
              AREA
                OF MUTUAL INTEREST

            


    

    


    An
      Area
      of Mutual Interest (AMI) shall exist within four miles of the boundaries of
      the
      Leases. Areas of Mutual Interest established under Coastal’s prior third party
      agreements that are still in effect are excluded from this AMI. 

    


    
      	 	
              C.

            	
              INTENTION
                OF THE PARTIES

            


    

    


    Coastal’s
      intention is to grant to Cobra a right to purchase a 50% working interest in
      the
      Leases for a period of two years from the date of the MOI, for a consideration
      of $180,000. To exercise the right to purchase, notice must be given of Cobra’s
      agreement to pay $1,000,000 toward Coastal’s drilling costs and the requirements
      under section E herein must be fulfilled. Following the exercise of Cobra’s
      right to purchase, the Parties would each pay 50% of the cost of wells in which
      they both participate and each be entitled to 50% of the revenues of wells
      in
      which they both participate. Cobra’s intention is to acquire the total of the
      working interests Coastal intends to farmout.

    


    
      	 	
              D.

            	
              COBRA
                TO ACQUIRE A RIGHT TO PURCHASE A 50%

              WORKING
                INTEREST IN THE
                LEASES.

            


    

     

    In
      order
      to acquire the right to purchase a 50% interest in the Leases (“the Interest”)
      for a period of two years, Cobra has paid Coastal the sum of $180,000. During
      this two year period Cobra is not obligated to drill any well on the property,
      until and unless it exercises the right to purchase the Interest. However,
      if
      Cobra desires to perform geologic analyses or drill a well before it has
      purchased the Interest, it shall pay the full cost of such analyses or well
      or
      wells and be entitled to a 50% working interest in the spacing unit of the
      well
      or wells if a successful well is drilled. No portion of the cost paid by Cobra
      to perform such analyses or drill such wells shall apply to the $1,000,000
      required to be paid by Cobra to complete the acquisition of the Interest. If
      Coastal desires to drill a well before Cobra has given notice of its intent
      to
      exercise its right to acquire the Interest and Cobra does not participate in
      the
      well, Coastal will pay the full cost of the well and be entitled to 100% of
      the
      working interest in the spacing unit of the well. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	
              E.

            	
              EXERCISE
                BY COBRA OF RIGHT TO ACQUIRE A 50%

              INTEREST
                IN THE
                LEASES

            


    

     

    In
      order
      for Cobra to complete the acquisition of the 50% interest Coastal is offering,
      Cobra and Coastal agree that:

    


    
      	 	
              1.

            	
              At
                the time of Cobra’s intent to exercise the right to acquire the 50%
                interest in the Leases, but no later than May 22, 2010, Cobra shall
                send
                Coastal a letter exercising the right to acquire and agreeing to
                pay to
                Coastal or for Coastal’s benefit, the sum of $1,000,000 toward the cost of
                drilling wells on the Leases.

            


    

    
      	 	
              2.

            	
              When
                a well is proposed in which Cobra participates, Cobra will pay both
                its
                share and Coastal’s share of the cost of such well, until such time as it
                has paid the $1,000,000 toward Coastal’s share of costs.
                

            


    

    
      	 	
              3.

            	
              When
                a well is proposed in which Cobra does not participate, Cobra will
                pay the
                full cost of such well up to the $1,000,000, or whatever portion
                of the
                $1,000,000 remains to be paid by Cobra at that
                time.

            


    

    
      	 	
              4.

            	
              At
                the time of full payment, Coastal shall assign the 50% undivided
                working
                interest in the Leases to Cobra.

            


    

    


    
      	 	
              F.

            	
              RENTALS:

            


    

    


    Once
      Cobra is assigned its 50% interest under the leases, Coastal and Cobra shall
      each pay their proportionate share of the delay or other rentals on the Leases.
      Coastal shall be the party which actually submits the rentals to the lessors.
      Coastal shall give sixty days notice to Cobra of the date when rentals are
      due
      and Cobra shall pay its share, whatever that may be at the time, within fifteen
      days of the date of the notice to Coastal. Coastal shall pay the rentals
      advanced. In the event that either party elects not to pay its portion of the
      rentals to any part of the Lease it shall give the other party at least sixty
      days notice of its intention not to pay rentals and the other party may do
      so
      and retain that portion of the Lease as its sole property, less and excluding
      any producing units where the party’s rights continue and no rentals were due.


    


    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	 	
              G.

            	
              FAILURE
                TO FULFILL REQUIREMENTS:

            


    

    


    In
      the
      event that Cobra completes the requirements of Paragraph E above, Cobra shall
      have earned a 50% undivided working interest in the Leases. In the event that
      Cobra fails to timely meet any of the requirements of Paragraph E. then Cobra
      shall earn no interest at all in the Leases.

    


    
      	 	
              H.

            	
              SUBSEQUENT
                EXPLORATION OF THE LEASES:

            


    

    


    After
      Cobra earns its 50% undivided interest in the Leases, either party may propose
      a
      well within the Leases or additional acreage acquired within the area of mutual
      interest. The other party may opt-in or opt-out of the proposed well, on a
      well
      by well basis. If the other party opts-in, the drilling shall proceed with
      both
      Parties paying their share of the costs. If the other party opts-out of the
      proposed well the party opting out shall have no interest in the spacing unit
      of
      that well, but the party opting out shall retain its right to participate in
      any
      other well drilled as a development well or exploratory well following the
      well
      the party has opted out of.

    


    
      	 	
              I.

            	
              WELL
                INFORMATION:

            


    

    


    Each
      party shall furnish the other party with daily drilling reports, logs, DST
      results, results of other tests performed, and production reports on any well
      it
      drills under this Agreement.

     

    
      	 	
              J.

            	
              OPERATING
                AGREEMENT:

            


    

    


    All
      operations for the joint account of Coastal and Cobra on the Leases shall be
      in
      accordance with the terms and provisions of the model Joint Operating Agreement
      attached hereto and made a part of this Agreement as Exhibit “B”. Coastal shall
      be designated Operator except where it declines to participate in the drilling
      of a well or wells by Cobra, in which case, Cobra may elect to act as operator
      and owner of such well or wells, so long as it meets the following
      qualifications: Cobra shall be registered to do business in Montana; shall
      be
      bonded and provide proof of insurance to Coastal; and shall not commence
      operations until a notice of change of operator has been filed and accepted
      by
      the proper authorities, or in the alternative, a permit has been granted in
      Cobra’s name 

    


    
      	 	
              K.

            	
              TIME
                OF THE ESSENCE:

            


    

    


    It
      is
      understood that time is of the essence of this Agreement, and no provision
      hereof shall be modified nor waived except in writing.

    


    
      	 	
              L.

            	
              AREA
                OF MUTUAL INTEREST
                ACQUISITIONS:

            


    

    


    The
      Area
      of Mutual Interest exists within four miles of the boundaries of the Leases.
      Each party shall offer to the other party the right to participate for its
      then
      current share of the interest in the Leases in the acquisition of any lease
      or
      other interest that party may have the option to acquire, at the same percentage
      of the cost of acquisition. In the event that the other party declines to
      participate, then that lease or other interest shall become outside this AMI
      and
      the other party shall have no interest under the AMI rights as to that lease
      or
      interest acquired. Areas and AMIs established by or included in Coastal’s
      existing third party agreements are excluded from this AMI. A party may propose
      geological investigations of whatever character within the AMI, and that party
      shall offer to the other party the right to participate in the costs and results
      of the proposed geological investigation. In the event that the other party
      declines to participate, then that party shall have no right to the information
      and data from the geological investigation. However, declining to participate
      in
      the geological investigation shall not affect that party’s right to participate
      in any well proposed by the party.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	 	
              M.

            	
              FORCE
                MAJEURE:

            


    

    


    In
      the
      event any party hereof is prevented from complying with any of the obligations
      imposed upon it hereunder, or from exercising any of the rights granted to
      it
      hereunder, as a result of an act of God, or any other cause, whether similar
      or
      dissimilar, reasonably proved beyond the control of such party, the time within
      which said party may perform such obligations or exercise such rights shall
      be
      extended for a period equal to the time during which said party was prevented
      from the performance of such obligations, or the exercise of such rights. The
      party having the difficulty shall take all reasonable steps to remedy such
      condition as rapidly as possible.

     

    
      	 	
              N.

            	
              NOTICES:

            


    

    


    All
      notices and other communications given or made pursuant to this Agreement shall
      be in writing and shall be deemed effectively given: (a) upon personal delivery
      to the party to be notified, (b) when sent by confirmed electronic mail or
      facsimile if sent during normal business hours of the recipient, and if not
      so
      confirmed, then on the next business day, (c) five (5) days after having been
      sent by registered or certified mail, return receipt requested, postage prepaid,
      or (d) one (1) day after deposit with a nationally recognized overnight courier,
      specifying next day delivery, with written verification of receipt. All
      communications shall be sent to the respective Parties at their address as
      set
      forth below or to such e-mail address, facsimile number or address as
      subsequently modified by written notice given in accordance with this Section.
      

    


    
      	
              Coastal
                Petroleum Company

              Post
                Office Box 609

              Apalachicola,
                Florida 32329

               

              Telephone
                Number: 850-653-2732

              Fax
                Number: 850-653-2732

            	
              Cobra
                Oil & Gas Company

              Uptown
                Center

              2100
                West Loop South, Suite 900

              Houston,
                Texas 77027

               

              Telephone
                Number:

              Fax
                Number:

            


    

    


    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    
      	 	
              O.

            	
              LEGAL
                ACTIONS: 

            


    

    


    If
      any
      action at law or in equity (including arbitration) is necessary to enforce
      or
      interpret the terms of any of this Agreement, the prevailing party shall be
      entitled to reasonable attorney’s fees, costs and necessary disbursements in
      addition to any other relief to which such party may be entitled.

     

    
      	 	
              P.

            	
              AMENDMENTS:

            


    

     

    Any
      term
      of this Agreement may be amended, terminated or waived only with the written
      consent of each of the Parties hereto.

     

    	 	
            Q.
              

          	
            SEVERABILITY:

          


     

    The
      invalidity or unenforceability of any provision hereof shall in no way affect
      the validity or enforceability of any other provision.

     

    	 	
            R.

          	
            DELAY
              NO WAIVER OF REMEDIES:

          


    


    No
      delay
      or omission to exercise any right, power or remedy accruing to any party under
      this Agreement, upon any breach or default of any other party under this
      Agreement, shall impair any such right, power or remedy of such non-breaching
      or
      non-defaulting party nor shall it be construed to be a waiver of any such breach
      or default, or an acquiescence therein, or of or in any similar breach or
      default thereafter occurring; nor shall any waiver of any single breach or
      default be deemed a waiver of any other breach or default theretofore or
      thereafter occurring. Any waiver, permit, consent or approval of any kind or
      character on the part of any party of any breach or default under this
      Agreement, or any waiver on the part of any party of any provisions or
      conditions of this Agreement, must be in writing and shall be effective only
      to
      the extent specifically set forth in such writing. All remedies, either under
      this Agreement or by law or otherwise afforded to any party, shall be cumulative
      and not alternative.

     

    
      	 	
              S.
                

            	
              ENTIRE
                AGREEMENT:

            


    

     

    This
      Agreement (including the Exhibits hereto), constitute the full and entire
      understanding and agreement between the Parties with respect to the subject
      matter hereof, and any other written or oral agreement relating to the subject
      matter hereof existing between the Parties are expressly canceled.

     

    
      	 	
              T.

            	
              ARBITRATION:

            


    

     

    The
      Parties agree that any unresolved controversy or claim arising out of or
      relating to this Agreement, except as: (i) otherwise provided in this
      Agreement, or (ii) any such controversies or claims arising out of either
      party’s intellectual property rights for which a provisional remedy or equitable
      relief is sought, shall be submitted to arbitration by one arbitrator mutually
      agreed upon by the Parties, and if no agreement can be reached within thirty
      (30) days after names of potential arbitrators have been proposed by the
      American Arbitration Association (the “AAA”),
      then
      by one arbitrator having reasonable experience in oil and gas transactions
      of
      the type provided for in this Agreement and who is chosen by the AAA. The
      arbitration shall take place in Tallahassee, Florida, in accordance with the
      AAA
      rules then in effect, and judgment upon any award rendered in such arbitration
      will be binding and may be entered in any court having jurisdiction thereof.
      There shall be limited discovery prior to the arbitration hearing as follows:
      (a) exchange of witness lists and copies of documentary evidence and documents
      relating to or arising out of the issues to be arbitrated; (b) depositions
      of all party witnesses; and (c) such other depositions as may be allowed by
      the
      arbitrators upon a showing of good cause. Depositions shall be conducted in
      accordance with the Florida Code of Civil Procedure, the arbitrator shall be
      required to provide in writing to the Parties the basis for the award or order
      of such arbitrator, and a court reporter shall record all hearings, with such
      record constituting the official transcript of such proceedings. The prevailing
      party shall be entitled to reasonable attorney’s fees, costs, and necessary
      disbursements in addition to any other relief to which such party may be
      entitled. Each of the Parties to this Agreement consents to personal
      jurisdiction for any equitable action sought in the U.S. District Court for
      the
      Northern District of Florida or any court of the State of Florida having subject
      matter jurisdiction.

    


    
      
         

      

      
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                U.
                  

              	
                DATE:

              



    

    


    The
      date
      of this Agreement is June 10, 2008.

     

    
      	Coastal Petroleum
              Company	 	Cobra Oil & Gas
              Company
	 	 	 	 	 
	By:	/s/ Phillip
              W. Ware	 	By:	/s/ Max
              Pozzoni
	 	
              

              Phillip
                W. Ware, President

            	 	 	
              

              Max
                Pozzoni, President

            


    

     

    
      
         

      

      
        6